Question 1

All else equal, a negative supply shock:
A) causes consumer surplus to increase and producer surplus to decrease.
B) causes consumer surplus to decrease and producer surplus to increase.
C) causes both consumer and producer surplus to increase.
D) causes both consumer and producer surplus to decrease.

Accepted Answer

A negative supply shock decreases the quantity supplied, leading to an increase in price. This leads to a decrease in consumer surplus as consumers pay more for the same quantity of goods or services. In addition, the decrease in quantity supplied leads to a decrease in production, leading to a decrease in producer surplus. Therefore, both consumer and producer surplus will decrease.

Question 2

Suppose that last year the equilibrium price and the quantity of good X were $10 and 5 million pounds, respectively. Because of strong demand this year, the equilibrium price and the quantity of good X are $12 and 7 million pounds, respectively. Assuming that the supply curve of good X is linear, producer surplus:
A) decreased from $8 million to $6 million.
B) increased from $12.5 million to $24.5 million.
C) increased from $3 million to $7 million.
D) increased from $4.2 million to $5.6 million.

Accepted Answer

The increase in both price and quantity indicates an increase in producer surplus. The initial producer surplus was calculated as 0.5 * 5 million * ($10 - $0) = $12.5 million. The new producer surplus is 0.5 * 7 million * ($12 - $0) = $24.5 million.

Question 3

Use the following to answer questions 11-12:
Figure 3.4 
-(Figure 3.4) The outward shift of the supply curve will cause consumer surplus to increase from area _____ to area _____.
A) A + B; C + D
B) A + B + C + D; D + F
C) B + C; F
D) A; A + B + C + D

Accepted Answer

D

Question 4

Nancy paid $55 for car mats but was willing to pay $80. What is Nancy's consumer surplus?
A) $105
B) $15
C) $25
D) $135

Accepted Answer

Nancy's consumer surplus can be calculated as the difference between what she was willing to pay and what she actually paid:
Consumer Surplus = Willingness to Pay - Actual Payment
Consumer Surplus = $80 - $55
Consumer Surplus = $25

Question 5

Use the following to answer question:
Figure 3.6 
-(Figure 3.6) An increase in demand caused consumer surplus to change from _____ to _____.
A) $16; $36
B) $8; $12
C) $8,000; $12,000
D) $4,000; $9,000

Accepted Answer

From the graph, we can see that an increase in demand causes the demand curve to shift to the right, leading to an increase in both consumer surplus and producer surplus. The original consumer surplus is $4,000, and the new consumer surplus is $9,000. Therefore, the correct answer is choice D, $4,000 to $9,000.

Question 6

Use the following to answer question: Figure 3.3 -(Figure 3.3) The decrease in supply from S₁ to S₂ will cause consumer surplus to _____ and producer surplus to _____. A) decrease by $10.50; decrease by $4.50 B) decrease by $5.50; increase by $3 C) increase by $6; decrease by $18 D) increase by $8.75; increase by $6.67

Accepted Answer

When the supply decreases, the equilibrium price increases from P1 to P2. As a result, the consumer surplus decreases from the area above P1 and below the demand curve to the area above P2 and below the demand curve. The producer surplus decreases from the area below P1 and above the supply curve to the area below P2 and above the supply curve.

The magnitude of the decrease in consumer surplus is equal to the area of the triangle bounded by P1, P2, and the vertical axis. In this case, the height of the triangle is 5 units and the base is $1.05 (the increase in price from $9.50 to $10.55). Therefore, the decrease in consumer surplus is 0.5 x 5 x $1.05 = $2.63.

The magnitude of the decrease in producer surplus is equal to the area of the rectangle bounded by the horizontal axis, P1, P2, and the quantity axis. In this case, the height of the rectangle is 10 units and the base is $1.05. Therefore, the decrease in producer surplus is 10 x $1.05 = $10.50.

Therefore, consumer surplus decreases by $2.63 and producer surplus decreases by $10.50, leading to a total decrease in surplus of $13.13. This is best captured by choice A.

Question 7

The demand for a good is given by Q^D = 750 - 0.4P. What is consumer surplus at a price of $80? A) $644,405 B) $57,440 C) $1,875 D) $71,800

Accepted Answer

The answer of The demand for a good is given...

Question 8

The demand and supply curves for Fuji apples are given by Q^D = 50 - 6P and Q^S = 4P - 2, where P is price per bag and Q is in thousands of bags. What are consumer surplus and producer surplus at the equilibrium price? A) CS = $450; PS = $375 B) CS = $856,000; PS = $1,126,113 C) CS = $15,006; PS = $7,657 D) CS = $29,422; PS = $44,180

Accepted Answer

The answer of The demand and supply curves for Fuji...

Question 9

Which of the following supply curves (where P is price per bushel and Q^S measures number of bushels) generates $64 of producer surplus at a market price of $10 per bushel? A) Q^S = 7.5P - 1.5 B) Q^S = 10P - 3 C) Q^S = 2P - 4 D) Q^S = 6P - 8

Accepted Answer

To generate $64 of producer surplus at a market price of $10 per bushel, we need to find the point where the supply curve intersects with the price axis at $10, and where the quantity supplied equals the quantity demanded to determine the equilibrium quantity. Then, we can use the formula for producer surplus, which is (market price - minimum supply price) x quantity. For option C, when P=10, Q^S = 2(10) - 4 = 16. At a price of $10 per bushel, the equilibrium quantity is 16 bushels. The minimum supply price is $6 per bushel, which we can find by plugging in the equilibrium quantity to the supply equation: Q^S = 2P - 4 = 16, therefore P = $10 and 10 = 2P - 4, so P = $7. Therefore, the producer surplus is ($10 - $6) x 16 = $64. None of the other options have a supply curve that would generate $64 of producer surplus at a market price of $10 per bushel.

Question 10

Use the following to answer question: Figure 3.5 -(Figure 3.5) After September 11, the demand curve for air travel shifted inward, from D₂₀₀₀ to D₂₀₀₁. In 2000 the equilibrium price and quantity were $122.22 and 148.9 million enplanements, respectively. After September 11, the equilibrium price and quantity fell to $104.82 and 123.6 million enplanements, respectively. The loss in producer surplus attributable to the decrease in demand is equal to area: A) A. B) A + B. C) B + C. D) B.

Accepted Answer

The loss in producer surplus due to a decrease in demand is represented by the area between the original and new demand curves, above the new price level, which is area A + B.

Question 11

When demand and supply are linear, consumer surplus is equal to:
A) the area between the demand curve and the price, out to the quantity that is exchanged.
B) the area between the supply curve and the price, out to the quantity that is exchanged.
C) the entire area between the demand curve and the price. See Section 3.1.
D) the entire area between the supply curve and the price.

Accepted Answer

Consumer surplus is the difference between the maximum price a consumer is willing to pay and what they actually pay for a product. When demand and supply are linear, consumer surplus is equal to the area between the demand curve and the price, out to the quantity that is exchanged. This is because the demand curve represents the maximum price consumers are willing to pay, and the price represents what they actually pay. The area between the demand curve and the price up to the quantity that is exchanged reflects the difference between what consumers are willing to pay and what they actually pay, which is their surplus.

Question 12

All else equal, a demand increase:
A) causes consumer surplus to increase and producer surplus to decrease.
B) causes consumer surplus to decrease and producer surplus to increase.
C) causes both consumer and producer surplus to increase.
D) causes both consumer and producer surplus to decrease.

Accepted Answer

An increase in demand will shift the demand curve to the right, causing both consumer and producer surplus to increase. Consumers will be willing to pay a higher price, leading to an increase in producer surplus. Additionally, consumers will enjoy a larger quantity of the good, resulting in an increase in consumer surplus. All else equal, this increase in surplus for both parties is a beneficial outcome.

Question 13

Use the following to answer questions 11-12:
Figure 3.4 
-(Figure 3.4) The outward shift of the supply curve will cause producer surplus to increase from area _____ to area _____.
A) B; E + F
B) A + B; D + F
C) A + B + C; D + F
D) C; D

Accepted Answer

When supply curve shifts outward, the equilibrium price increases from P1 to P2 which results in an increase in producer surplus from area B (previous equilibrium producer surplus) to area E+F (new equilibrium producer surplus).

Question 14

The market for organic cabbage is represented by Q^D = 1,200 - 75P and Q^S = 425P - 300, where P is the price per head of cabbage and Q measures the number of heads of cabbage per week. Suppose the price of organic fertilizer falls, making sellers willing to sell 100 more heads of cabbage per week at every price. What happens to producer and consumer surplus as a result of this change? A) Consumer surplus increases from $6,337.50 to $6,534, and producer surplus increases from $1,116.38 to $1,153.35. B) Consumer surplus increases from $15,000 to $16,200, and producer surplus increases from $4,600 to $7,700. C) Consumer surplus remains unchanged, but producer surplus increases from $351.22 to $454.15. D) Consumer surplus increases from $1,899 to $2,300.25, and producer surplus increases from $1,500.40 to $1,910.05.

Accepted Answer

When the price of organic fertilizer falls, the supply curve shifts to the right, resulting in an increase in quantity supplied at every price. The new supply curve can be represented as follows: Q^D = 1,300 - 75P and Q^S = 525P - 300. To find the new equilibrium, we set quantity supplied equal to quantity demanded: 1,300 - 75P = 525P - 300 Thus, P = $6 and Q = 850. To find the new consumer surplus, we need to calculate the area under the demand curve and above the new equilibrium price: CS = ($12 - $6)(850/2) = $3,525 To find the new producer surplus, we need to calculate the area under the price and above the new equilibrium quantity, plus the area of the rectangle formed by the equilibrium price and quantity: PS = ($6)(850 - 700) + ($12 - $6)(150) = $958.33 Therefore, consumer surplus increases from $6,337.50 to $6,534, and producer surplus increases from $1,116.38 to $1,153.35.

Question 15

Use the following to answer question:
Figure 3.1 
-(Figure 3.1) At a market price of $4, what is total consumer surplus?
A) $120
B) $320
C) $160
D) $80

Accepted Answer

The answer of Use the following to answer question:
Figure 3.1...

Question 16

Use the following to answer question:
Figure 3.2 
-(Figure 3.2) If the price per bag of grapefruit increases from $6 to $8, producer surplus changes by:
A) $130.
B) $50.
C) $90.
D) $40.

Accepted Answer

The answer of Use the following to answer question:
Figure 3.2...

Question 17

Suppose that technological breakthroughs make jet packs affordable, convenient, and safe for personal transportation. The demand for automobiles would become _____ the consumer surplus from automobiles.
A) more price elastic, decreasing
B) more price inelastic, increasing
C) more price inelastic, decreasing
D) perfectly inelastic, increasing

Accepted Answer

With the introduction of jet packs as a viable alternative to automobiles, consumers would have more transportation options, making them more sensitive to changes in the price of automobiles. This increased sensitivity to price changes makes the demand for automobiles more price elastic. As consumers switch to using jet packs, the value they derive from automobiles decreases, leading to a decrease in consumer surplus for automobiles.

Question 18

Use the following to answer questions 20-21:
Figure 3.7 
-(Figure 3.7) At a price ceiling of $8, there is a shortage of _____ and a deadweight loss of _____.
A) 200 pounds; $1,200
B) 500 pounds; $400
C) 300 pounds; $600
D) 300 pounds; $300

Accepted Answer

The correct answer is D because at a price ceiling of $8, the quantity demanded is 1,100 pounds and the quantity supplied is 800 pounds, resulting in a shortage of 300 pounds. The deadweight loss is the area of the triangle formed by the difference between the equilibrium price and the price ceiling, which is $300.

Question 19

Tavist allergy pills sell for $25 a box. Steve, Brian, and Toby are willing to pay $33, $27, and $19, respectively, for a box of Tavist. What is the total consumer surplus for Steve, Brian, and Toby?
A) $16
B) $10
C) $4
D) $60

Accepted Answer

The answer of Tavist allergy pills sell for $25 a...

Question 20

Justin purchased a Polar Express train set from Lionel Trains. He paid $240 for the set and received consumer surplus of $125. What was Justin's willingness to pay for the train set?
A) $115
B) $240
C) $250
D) $365

Accepted Answer

Justin's willingness to pay can be calculated by adding the consumer surplus to the price he actually paid for the train set. Therefore, his willingness to pay was $240 + $125 = $365.

Quiz 3: Using Supply and Demand to Analyze Markets

All else equal, a negative supply shock:

Use the following to answer questions 11-12: Figure 3.4 -(Figure 3.4) The outward shift of the supply curve will cause consumer surplus to increase from area _ to area _.

Nancy paid $55 for car mats but was willing to pay $80. What is Nancy's consumer surplus?

Use the following to answer question: Figure 3.6 -(Figure 3.6) An increase in demand caused consumer surplus to change from _ to _.

Use the following to answer question: Figure 3.3 -(Figure 3.3) The decrease in supply from S₁ to S₂ will cause consumer surplus to _ and producer surplus to _.

The demand for a good is given by Q^D = 750 - 0.4P. What is consumer surplus at a price of $80?

The demand and supply curves for Fuji apples are given by Q^D = 50 - 6P and Q^S = 4P - 2, where P is price per bag and Q is in thousands of bags. What are consumer surplus and producer surplus at the equilibrium price?

Which of the following supply curves (where P is price per bushel and Q^S measures number of bushels) generates $64 of producer surplus at a market price of $10 per bushel?

When demand and supply are linear, consumer surplus is equal to:

All else equal, a demand increase:

Use the following to answer questions 11-12: Figure 3.4 -(Figure 3.4) The outward shift of the supply curve will cause producer surplus to increase from area _ to area _.

Use the following to answer question: Figure 3.1 -(Figure 3.1) At a market price of $4, what is total consumer surplus?

Use the following to answer question: Figure 3.2 -(Figure 3.2) If the price per bag of grapefruit increases from $6 to $8, producer surplus changes by:

Suppose that technological breakthroughs make jet packs affordable, convenient, and safe for personal transportation. The demand for automobiles would become _____ the consumer surplus from automobiles.

Use the following to answer questions 20-21: Figure 3.7 -(Figure 3.7) At a price ceiling of $8, there is a shortage of _ and a deadweight loss of _.

Tavist allergy pills sell for $25 a box. Steve, Brian, and Toby are willing to pay $33, $27, and $19, respectively, for a box of Tavist. What is the total consumer surplus for Steve, Brian, and Toby?

Justin purchased a Polar Express train set from Lionel Trains. He paid $240 for the set and received consumer surplus of $125. What was Justin's willingness to pay for the train set?

Quiz 3: Using Supply and Demand to Analyze Markets

All else equal, a negative supply shock:

Use the following to answer questions 11-12: Figure 3.4 -(Figure 3.4) The outward shift of the supply curve will cause consumer surplus to increase from area _____ to area _____.

Nancy paid $55 for car mats but was willing to pay $80. What is Nancy's consumer surplus?

Use the following to answer question: Figure 3.6 -(Figure 3.6) An increase in demand caused consumer surplus to change from _____ to _____.

Use the following to answer question: Figure 3.3 -(Figure 3.3) The decrease in supply from S1 to S2 will cause consumer surplus to _____ and producer surplus to _____.

The demand for a good is given by QD = 750 - 0.4P. What is consumer surplus at a price of $80?

The demand and supply curves for Fuji apples are given by QD = 50 - 6P and QS = 4P - 2, where P is price per bag and Q is in thousands of bags. What are consumer surplus and producer surplus at the equilibrium price?

Which of the following supply curves (where P is price per bushel and QS measures number of bushels) generates $64 of producer surplus at a market price of $10 per bushel?